Mongolia banking on investment to cut aid dependency

AFP , ULAN BATOR

Mongolia, one of the world's poorest countries, is counting on foreign investment to spur its economic development so it can cut free from the international donors on which it depends.

One-sixth the size of China but home to only 2.6 million people, the homeland of proud warrior Genghis Khan is hoping its underground riches, not yet fully explored, will provide the path out of poverty.

It is banking on an increasing demand for raw materials, notably from China, to sustain its growth, which accelerated to reach 5.3 percent last year.

Its primary known natural resources are mineral deposits, while searches for oil reserves have so far yielded little and the country continues to import oil from Russia.

Expanding the tourism sector, which currently makes up 10 percent of GDP, is seen as another opportunity for the country to create jobs and bring in much-needed foreign currency.

Of US$1 billion of foreign direct investment in the country until the end of last year, about US$460 million was targeted at mines and oil. Foreign direct investment increased from US$91 million in 2000 to US$204 million last year.

But the country is one of the most aid-dependent in the world. It has received some US$3 billion in international aid since 1991, yet its foreign debt stands at 91 percent of its GDP.

The contributions of international donors make up half of the state budget.

"Our interest is to attract foreign investors and see the transfer of technology with the aim of becoming less dependent on international aid," deputy economy minister Erdene told reporters.

To entice foreign companies to set up here, the Mongolian government has offered tax breaks which vary from sector to sector.

Since the end of communist rule 14 years ago, the country has suffered from the break-up of the Soviet Union, the Asian financial crisis, and two particularly harsh winters in 2000 and 2001, which killed eight million livestock out of 33 million.

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